Scalper1 News
By DailyAlts Staff The problem with actively managing an ETF is that regulators require daily disclosure of their holdings, and this would potentially allow fund-watchers to “front run” and undermine the ETF’s investment strategies. Eaton Vance’s NextShares “ETMFs” – exchange-traded managed funds – attempt to address this problem by doing away with the daily disclosure requirements, but this also causes the proposed ETMFs to be priced during the trading day at a discount or premium to their net-asset value, rather than in the traditional dollars-and-cents format. Thus, while the idea is good, it may take some time to get investors used to the pricing mechanism. Other proposed “active ETF” formats have yet to be approved by the SEC, but Direxion’s new long/short ETF sidesteps these problems by rebalancing its long holdings on a quarterly basis and actively managing its short exposure in a way that would be difficult (if not impossible) to “front run” – it limits its short positions to the S&P 500 index, rebalancing as often as once a day. Thus, daily disclosure will only allow fund-watchers to “front run” the new ETF’s short portion, and with the market for S&P 500 derivatives so huge, front-runners will have a minimal impact, at most. Direxion filed paperwork with the SEC on July 30, announcing its plan to launch the Direxion Credit Suisse U.S. Hedged Equity Index ETF . The fund, which is expected to launch on or around October 13, will give investors the chance to buy into an exchange-traded long/short equity strategy designed to shift exposure according to the current stage of the global economic cycle: Over-heating, Slowdown, Contraction, or Recovery. Direxion starts with the 1,500 biggest U.S. stocks, by market cap, and filters them for those with characteristics that have previously outperformed during the current stage of the global economic cycle. It selects the 100 stocks with the largest market caps that meet the criteria, and then adjusts its short exposure to the S&P 500 from 0% to 100% of the long position, based on rolling 3-month risk-adjusted return and mean-reversion indicators of the S&P 500. This is also the methodology of the Credit Suisse U.S. Hedged Equity Index, the new ETF’s benchmark. Although Direxion’s new ETF is innovative, it isn’t the first equity-hedged ETF on the market. According to ETF.com , ProShares, First Trust, and Credit Suisse operate similar funds, including the ProShares RAFI Long/Short ETF (NYSEARCA: RALS ), which debuted on December 9 and has a five-star rating from Morningstar. Scalper1 News
Scalper1 News